Monday, January 05, 2015

NASAA Advocates Credit Check Exclusion for FINRA

[This story previously appeared in Securities Regulation Daily.]

By John M. Jascob, J.D.

NASAA has expressed concern regarding pending state and municipal legislation that would prohibit certain employers from conducting credit checks on prospective employees. NASAA fears that unless these bills provide for an explicit exclusion for FINRA, there may remain ambiguity surrounding FINRA’s authority to conduct background checks on agents applying for securities licenses. NASAA’s comments came in separate letters to the National Conference of State Legislatures and the United States Conference of Mayors.

NASAA noted that 11 states have enacted laws regulating credit reports used by employers for employment purposes since 2007, and that 16 other states plus the District of Columbia and New York City are currently considering such legislation. In addition, the City of Chicago enacted a law on May 1, 2012, prohibiting employers from using credit history as a basis for making employment decisions.

Role of Form U4. NASAA emphasized the importance of Form U4 (Uniform Application for Industry Registration and Transfer) to both state regulators and FINRA in carrying out their regulatory responsibilities. State securities regulators and FINRA rely on the information disclosed by applicants on Form U4 in order to administer the broker-dealer agent registration process in a uniform and efficient manner.

NASAA stated that the disclosures required from prospective agents concerning bankruptcies and outstanding judgments or liens are not designed to present a barrier to entering the industry, but rather to provide firms, regulators, and investors with relevant and accurate information on each broker-dealer agent. Accordingly, NASAA stressed the importance of explicitly referring to FINRA in an exclusion in any legislation that prohibits employers from requesting credit history information from prospective employees.

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